Anti-competitive Behaviour and Competition · PDF file• Oligopoly is a market structure with only a few ... Notable examples are: ... and Sri Lanka; 19 (III)

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Anti-competitive Behaviour and Competition Law
Tsang Shu-ki Professor of Economics, Hong Kong Baptist University
www.hkbu.edu.hk/~sktsang
20094

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Outline
(I) Approaches to competition analysis (II) Forms of anti-competitive
behaviour (III) International experience (IV) Hong Kongs past policy towards
competition (V) Recent developments

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(I) Approaches to competition analysis
The basic approaches to competition policy(Boner and Krueger, 1991) encompass three key aspects: (1) Performance ( ) ; (2) Structure ( ); and (3) Conduct ( ).

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70%50%

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2008

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(II) Forms of anti-competitive behaviour
Forms of anti-competitive behaviour that are identified in the literature can be classified into the following overlapping categories:
1. Monopoly and cartels () 2. Abuse of dominant position () 3. Horizontal restrictive practices (
) 4. Vertical restrictive practices () Useful quick references for the glossary of
various terms in these categories can be found in Directorate-General for Competition, EC (2002) and OECD (1993).

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(II) Forms of anti-competitive behaviour 1. Monopoly and cartels () This is the traditional core of attention on anti-
competitive behaviour. Perfect competition is the ideal analytical benchmark, whereas a monopolistic firm may be prone to restrict output and raise price, thereby obtaining abnormal profit. It will result in social welfare loss.
In the case of monopoly, whether natural(because of pervasive economies of scale) or artificial (as a result of man-made barriers, including legal and economic), regulation or introduction of competition/de-regulation may be the policy response.

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Perfect competition: P=MC

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Monopoly: P>MC

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Oligopoly is a market structure with only a few suppliers because of natural or artificialfactors. Oligopolistic firms could engage in heated competition, and the market may become contestable ().
On the other hand, cartels may be formed by collusion among players with market powerin an oligopoly. Efficiency and welfare loss would also result. Regulation or competition policy would be possible responses by the authority.

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(II) Forms of anti-competitive behaviour 2. Abuse of dominant position
() When a market is dominated by a player
with power among a number of much smaller suppliers, it is neither monopoly nor oligopoly in the strict sense.
The player may misuse its dominance (which could well have been acquired in perfectly fairmanner in the first place) by abusive or improper exploitation of market power aimed at restricting competition, e.g. predatory pricing (selling at below incremental costs/average variable costs/ avoidable costs) with the objective of driving out competitors.

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In other words, the dominant firm is nowexercising its market power in an unfair manner to undermine competition. To sanction against such behaviour is therefore not to penalise a victor.
Regulation or competition policy would be a possible response. In the EU, Canada, the term abuse of dominant position has been incorporated explicitly in competition legislation.

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(II) Forms of anti-competitive behaviour 3. Horizontal restrictive practices
() (a) price fixing (): an agreement
between firms to fix or raise price to restrict competition and earn higher profits;
(b) collusive bidding/bid rigging (): (i) firms agreeing to submit common bids, thus eliminating price competition; (ii) firms agreeing to submit the lowest bid by rotation and thereby each getting a certain amount of contracts;
{(a) and (b) are regarded as the cardinal offence in the US, Canada, UK and other jurisdictions; and they often result in criminal penalties if proven guilty.}

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(c) market division (): in products and locations;
(d)customer allocation/joint boycotts (/)
(e) sales and production quotas().

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(II) Forms of anti-competitive behaviour 4. Vertical restrictive practices
() (a) resale price maintenance (RPM)() : a supplier specifying the minimum or maximum price at which a product must be re-sold to customers by downstream firms, hence maintaining profit margins;
(b) tie-in sales/tied selling (): the sale of one good on the condition that another good is purchased;
(c) bundling/full-line forcing (package tie-in) (): which could be a more extensive offence than (b);

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Among the above overlapping categories of anti-competitive behaviour, vertical restrictive practices are more controversial. Critics of competition policies often argue that they are necessary for efficiency considerations, e.g. RPM is essential for viable after-sale maintenance service; while package tie-in is beneficial to consumers etc.
As a result, the OECD coined the term hard core cartels, which refers to firms engaging in largely horizontal restrictive practices such as price fixing, bid rigging, market and customer division (OECD, 2000).

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Outline

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(III) International Experience According to information compiled by
UNCTAD (2007), there are over 110 competition authorities in the world. Notable examples are: The Americas: USA, Canada, Mexico,
Argentina, Brazil, Chile, Peru, Venezuela, Jamaica and Costa Rica;
Asia: Japan, South Korea, Mainland China, Taiwan, Thailand, Indonesia, India, Philippines, Malaysia, Singapore and Sri Lanka;

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(III) International Experience Pacific: Australia, New Zealand, and
Fiji; Europe: all members of EU, Russia and
most of eastern Europe; Middle East: Israel, Turkey and
Jordon; Africa: South Africa, Zambia, Algeria,
Egypt and Kenya. Hong Kong is not on the list.

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(III) International Experience Coverage of competition legislation may include:
merger and acquisition abuse of dominant position vertical and horizontal restrictions etc.
Exemptions: on the basis of certain public interests, some structures, conduct or performance can be exempted form the competition law, e.g. R&D cartels, networks.
However, the process of granting exemptions and waivers should be transparent; and they should be regularly reviewed.

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(III) International Experience International tendencies
Focusing on anti-competitive conduct Starting from hard core cartels: price fixing, bid
rigging, collusive restrictions on output and division of markets (mainly horizontal restraints) (OECD, 2000) and refining legislation and enforcement over time
Increasing transparency in the implementation of competition laws
Leniency programmes to alleviate investigation and sanction problems
Promoting international cooperation in dealing with multinational cartels

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(III) International Experience For the links to various competition authorities,
visit Anti-trust and Regulatory Sites List(http://www.clubi.ie/competition/compframesite/WorldsBiggestAntiTrustSitesList.html).
There is a wide variety of competition regimes in the world. Tsang and Cameron (2001) highlighted several stylised models: US: the court approach (www.usdoj.gov/atr) Australia: the hybrid agency and court
approach (www.accc.gov.au) Taiwan: the agency approach - (www.ftc.gov.tw)

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(III) International Experience An important criterion to distinguish regimes is
whether civil and criminal sanctions/penalties are applied against offenders.
A very quick (perhaps not fully updated) summary: USs court approach: the FTC/DoJ act according
to anti-trust laws to put offenders through courts. Both civil and criminal penalties (fines and fines/imprisonment) could result for infringements.
Australias hybrid approach: the ACCC has partial autonomy. In most cases implementation is through courts. Offenders are subject to mainly civil penalties with criminal sanctions of fines applying only to individuals.

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(III) International Experience Taiwans agency approach: the FTC executes the
Fair Trade Law; has autonomy on civil sanctions; and prosecutes against criminal infringements through courts.
In all these models, there are appeals channels, as well as regulators in special sectors which are not fully susceptible to rigorous competition.
Other variants of competition regimes include the UK model, which has a relatively powerful enforcement agency (OFT) and sanctions cover both civil and criminal penalties (with the latter through courts), as well as the models of the European Union and Singapore, under which the agency imposes only civil fines, and the courts are responsible for appeals.

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Outline

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(IV) Hong Kongs progress so far
Milestones in HKs competiti

Documents

Anti-competitive Behaviour and Competition · PDF file• Oligopoly is a market structure with only a few ... Notable examples are: ... and Sri Lanka; 19 (III)